Africa ResearchBulletin Economic,

Financial andTechnical Series

Volume 49 Number 4 April 16th–May 15th 2012

SOUTH SUDAN –SUDANStruggling To Survive

The south’s weak economy is hithard by border clashes, and, withplunging oil exports, its northernneighbour is doing little better.

Weeks of brutal conflict with its arch-rival to the north have exacerbatedSouth Sudan’s deep economic problems,with fuel shortages worsening and fearsrising the country could run out of cash.After shutting down oil production thataccounted for 98% of its revenues inJanuary, newly independent SouthSudan’s import-dependent economy isreeling.

A border war began in late March,escalated by waves of Sudanese airstrikes against South Sudanese territoryand the South’s 10-day seizure of theHeglig oil field from Khartoum’s army,raising fears full-scale war could break

out in one of Africa’s most significantoil regions.

Sudanese Petroleum Minister Awad Ah-med al-Jaz announced on May 2ndresumption of the production of theHeglig oil fields, Sudan Tribune reported(2 ⁄ 5). Jaz said they had only managedto fix what was necessary to resume oilpumping. But experts say that Sudanneeds at least four to six months beforeoil production returns to normal.

With independence, landlocked SouthSudan took about 75% of the formerlyunited Sudan’s oil production, worthbillions of dollars. But the two sideswere unable to agree on how much the,South should pay to export its crudethrough a northern pipeline and port,leading Juba to shut production afterKhartoum began seizing the oil in lieuof payment. With its source of foreigncurrency stalled, the currency is strug-gling, reports AFP (10 ⁄ 5).

While the official exchange rate stillstands at Sudanese £2.96 to the US dol-lar, the black market rate has shot upto 5, the highest since independence.

Under a United Nations (UN) SecurityCouncil resolution issued on May 3rd,Juba and Khartoum were supposed torestart African Union (AU)-led talks byMay 16th, and must strike a deal on oiland contested borders within threemonths.

Leaked World Bank documents warn aweakening economy would worsen foodsecurity and hurt development, but Jubaargues the majority of Southerners areinsulated from inflation as they live out-side the cash economy. However, evensubsistence farmers and livestock herd-ers interact with the cash economy whenthey trade goods.

Speculation has been rife over whetherSouth Sudan could run out of moneywithin months if it doesn’t turn the oiltaps back on. Government reserves could

S u d a n

South Sudan

SouthKordofan

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ur

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ile

Abyel

This issue pp. 19507–538

Drought and Famine

Angola 19512

Malian Exodus 19513

UNCTAD Conference 19530

Nigeria

Fuel Subsidy Report 19516

Africa – China

Currency Swap 19519

Ghana

Depreciating Currency 19520

Malawi

Kwacha Devalued 19522

Contents

ContinentalDevelopments 19510

Policy and Practice 19512

Transport andCommunications 19527

Commodities 19529

Industries 19534

Rates 19537

Index 19538

Published monthly since 1964 http://www.wileyonline.com/journal/arbe

� Blackwell Publishing Ltd. 2012. ISSN 0001 9852

be depleted by July if there is a run onthe banks, or could last until Decemberif spending is cut by 77%, the leakedBank documents said. Expensive mili-tary commitments on the border willdrain the reserve even faster.

South Sudan Foreign Minister NhialDeng Nhial told the BBC that his gov-ernment was ready to pump no oil fortwo years, while it tried to negotiate a fairtariff with Khartoum to transport its oil.

South Sudan has signed agreementswith Ethiopia and Djibouti for a pipe-line to a Red Sea port and also withKenya for a pipeline to a port at Lamu.However, analysts have cast seriousdoubt over Juba’s plans to truck oilover a thousand kilometres to ports ineither Kenya or Djibouti, while theproposed billion-dollar pipeline couldtake up to three years to build – ifinvestors are found.

President Salva Kiir recently returnedfrom major oil-buyer China with $8bnof loans for development projects, butwithout pipeline funding.

Traders are struggling, with regionalneighbours limiting credit and refusingto take the world’s newest currency, theSouth Sudan pound, not yet recognisedoutside its borders.

David Chan Thiang, director of Eco-nomic Statistics at the NationalBureau, says inflation jumped 42% to50% between February and March,and 51% overall from 2011. He saysaccessing foreign exchange has longbeen a problem, and fears that flight ofcapital is now a reality.

‘‘As long as we are at a stalemate withKhartoum and there is high mistrust, Idon’t think the government of SouthSudan will be able to relinquish theirposition, and of course the inflationwill still go up as there is no way tostabilise,’’ Thiang added.

Staples like sugar and maize flour havealmost doubled in price in recent months.A South Sudanese government pressrelease quoted Minister for Informationand Broadcasting and official governmentspokesperson Dr Barnaba Marial Benja-min as saying that the government wasworking to correct the ‘‘unnecessary’’price increase inmarkets in the country.

‘‘The increase in prices has been artifi-cially created; there are certain businessgroups within the country which areworking to make sure prices go up, butthe government is forming clusters tosee that this exercise comes to an end’’,explained the minister.

Dr Marial said the government hadenough foreign currency for commodi-ties and essential needs to satisfy thedemands of the public. In an interview

with Abu Dhabi’s national online news-paper on May 2nd he said: ‘‘We aregiving nearly $50m to commercialbanks so as to facilitate business in thecountry but the money is being mis-managed’’. He announced that the gov-ernment through the Central Bank haddecided to produce letters of creditrather than giving cash to the commer-cial banks so that the hard currenciesare not diverted for other purposes.

World Bank Urges Talks

The World Bank warned on May 8thof its ‘‘deep concern’’ at the strugglingeconomies of Sudan and South Sudan.Offering support to both Juba andKhartoum to ensure the ‘‘protection ofvulnerable people from economic hard-ship,’’ the Bank said: ‘‘Given the des-perate living situation being faced bypeople in both Sudan and SouthSudan, the World Bank’s economicanalysis unambiguously shows that it isin the interests of both countries toresume talks urgently’’.

So weighed down with funding the con-flict with South Sudan, Khartoum haseven called on its public sector workersto contribute portions of their salariesto support the military in their ‘‘Repul-sion of the Aggressor’’ operation.

To pay for the military operation in thesouth, Sudan’s ministers gave up onemonth of their salaries to a fund set upto support the army. Other public sec-tor employees had two days’ paydeducted while public institutions wererequired to cut fuel expenditure by50%.

While Sudan said the economy grew by2% in the first quarter of 2012, it hasfailed to tame rampant inflation.Finance Minister Ali Mahmoud saidinflation in the first quarter rose to 21%from 12.9% in the same period in 2011.

Sudan’s loss of billions of dollars of oilrevenues will bring down the govern-ment as inflation soars, the economybuckles and people grow hungrier, Reu-ters (7 ⁄ 5) quoted opposition leaderHassan al-Turabi as saying in an inter-view. However, the government dis-missed Turabi’s statement, denying theeconomic situation was that gloomy.Information ministry advisor RabieAbdelatie said the situation was muchworse in the 1980s: ‘‘There was noinfrastructure, no oil, no development,no electricity. There’s a big difference.’’

Nevertheless, the loss of oil revenueshas left the country with $2.4bn gap inpublic finances as well as a trade deficitof $540m at the end of the currentquarter, compared to a surplus of$1.7bn in the same period of 2011.Thegovernment has also raised custom feesand a social development tax by 66%.

South Sudan said on May 10th itwould follow UN orders to return totalks with Sudan.

‘‘We are ready to go for talks anytime...If we don’t implement and comply withthe UNSC (United Nations SecurityCouncil) resolution, the conflict mayescalate,’’ said Deng Alor, SouthSudan’s Minister for Cabinet Affairs.

Juba may also be willing to re-start theflow of oil through northern pipelines,Alor said, easing earlier hardline posi-tions in which both the South andKhartoum said they would not use theinfrastructure.

Finding agreement on oil transit fees isa key part of ending the deadlock,points out AFP (10 ⁄ 5).

‘‘If there is an agreement on the use ofthe pipeline again through the territoryof Sudan, we will do that,’’ Alor said.‘‘If the Government of Sudan is notready for us to use their territory toexport our oil, then it goes without say-ing that we will not use it and we areplanning for an alternative pipeline,’’he said.

Alor said South Sudan was waiting forformer South African President ThaboMbeki, the head of a high-level AUpanel tasked with resolving the disputesbetween the two foes, to formally callthe two sides to resume talks on a spe-cific date. The AU road map for talksmade resolving the dispute over oil apriority, Alor said.

‘‘It’s a priority for everybody, for us,the government of Sudan, for investorsand for the AU,’’ he said. ‘‘We arecommitted to negotiations and discuss-ing everything.’’

Khartoum said there could be no talksunless the two sides settled securityissues.

‘‘In the coming negotiations, if wedon’t solve the security problems...there will be no talk over any otherclause – not oil, not trade, not citizen-ship, not Abyei, or any other file,’’ Ba-shir told a group of oil and miningworkers on May 10th.

Bashir has also threatened to tightenclosure of borders with South Sudan if

The main disputes between theSudans:

• Transit fees - South Sudan should paySudan to use its oil pipelines

• Demarcating the border• Both sides claim Abyei• The rights of each other’s citizens now

in a foreign country• Both countries accuse one another of

supporting rebel groups on theirrespective territories

19508 – Africa Research Bulletin

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� Blackwell Publishing Ltd. 2012.

no security deal is reached. Sudanalready declared a state of emergencyin border areas with South Sudan andannounced a policy of ‘‘shoot to kill’’against any elements involved in cross-border trade, Sudan Tribune, Khartoumreported (10 ⁄ 5).

Refugees’ Plight

Meanwhile, the International Organisa-tion for Migration (IOM) has con-firmed that the Sudanese governmenthas extended the deadline for thereturn of thousands of South Sudaneserefugees to their home country untilMay 20th – they had been given untilMay 5th. But then the governmenttold the IOM to disregard the timelimit after plans for the airlift weredevised.

An estimated 500,000 South Sudaneseremain in the north, most without resi-dency papers and treated as foreigners.In Juba, thousands of Sudanese citizensalso face a new government that hasdeclared them expatriates. But it hasnot yet imposed any new rules for resi-dency papers and appears willing to letthem stay.

In April, Khartoum told the SouthSudanese living in the north to eitherregularise their residency papers orleave the country, so thousands ofthem began their journey home. Butthey have become stuck at the Suda-nese river port and border town ofKosti in White Nile state as theauthorities refused to allow barges togo and take them across the riverbecause of concerns that the boatswould carry military equipment ormilitia northwards.

BBC News Online reported on the 12ththat the first group of South Sudaneserefugees stranded for months in a campin Sudan was on its way to the south.About 400 people – out of a total ofup to 15,000 – were being taken by busto Khartoum from where they wouldbe flown to Juba.

Oil Producing Areas

Despite coming from Southern ethnicgroups, many people have spent theirentire lives in the north and have neverbeen to South Sudan, so settling thereis likely to be a challenge. Many dohave relatives in the south though andthe IOM and other humanitarian agen-cies will be providing some help, theaid agency said.

Meanwhile Sudan is blocking aid to arebel-controlled area, putting the livesof the population at risk, the head ofthe SPLM-North rebels told the BBC.More than 200,000 people are in direneed and elderly and children arealready starting to die in the Blue Nile

state just north of the border withSouth Sudan, Malik Agar said.

The rebels signed a deal earlier with theUN, African Union (AU) and Arab Lea-gue (AL) toallow aid intoconflict areas.

More than70,000 civiliansfrom Blue Nileare being caredfor by the UNrefugee agencyUNHCR inSouth Sudan.

There are alsoconcerns aboutthe humanitar-ian situation inrefugee campsin South Sudan.UK charity Ox-fam has warnedthat the Jamamcamp in UpperNile state isexperiencingwater shortagesand congestion,which is makingit difficult foraid distribution.In neighbouringUnity state, aidworkers in Yidarefugee campsay there has

been a big rise recently in the numberof people fleeing fighting in SouthKordofan. (Sources as referenced in text)Heglig oil field seized p. 19475

Chinese Intervention?

Pressure is mounting on Chinese PresidentHu Jintao’s government to use its com-mercial ties with Juba and Khartoum forconstructive diplomacy.

South Sudan’s government and ruling partyhave welcomed the billions of dollars inpromised investment that resulted fromPresident Salva Kiir Mayardit’s April visitto Beijing, but they are calling for China totake a more active role in the resolution ofthe conflict. As its first Independence anni-versary draws near, South Sudan is turningstill further to the East for the investmentand development support it needs. This isless a political decision than an economicone: with instability continuing and low-level conflict growing with Sudan, mostWestern companies remain cautious aboutdoing much more than reconnoitre.

Salva Kiir returned from his visit with apromise of $8bn in loans and investment.The Chinese money is mainly ‘to financebasic infrastructure’, according to Secre-tary General of the governing Sudan Peo-ple’s Liberation Movement (SPLM)Pa’gan Amum Okiech.

China’s policy of political non-interferenceis indeed challenged by the conflict

between the two Sudans. Beijing alsoknows that South Sudan offers more oiland other economic interest than Sudan,though in the long term, a different gov-ernment in Khartoum might partly rectifythat balance. South Sudan, though, is justlaunching modern sector economic devel-opment and unlike most Western coun-tries, China is well in at the start.Although the South Sudan governmentrepeatedly stresses that it considers China‘‘a long-term friend’’, China also knowsthat Juba has not forgotten that the NCPregime developed the oil almost entirelythrough Chinese investment and that theoilfields were cleared through ethniccleansing. In the midst of heightened ten-sions, Juba expelled scores of Sudaneseemployees of the Chinese-Malaysian Petro-dar company in late April. China still isKhartoum’s main arms supplier, so it hassome ground still to make up on the pop-ularity stakes.

The most visible economic issue for out-siders is the new pipeline to Kenya, nowagreed with Toyota Tsusho Corporation(see p. 19533). Juba has asked China to beinvolved, too. (Africa-Asia Confidential,May)

Port Sudan

KhartoumERITREA

ETHIOPIA

Juba

SOUTHSUDAN

REPUBLICOF SUDAN

CHAD

CENTRALAFRICAN REPUBLIC

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RedSea

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Heglig

Refineries

Oil producing areas

Oil fields

Pipelines

Proposed pipelines

To Lamu, Kenya

April 16th–May 15th 2012 Africa Research Bulletin – 19509

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� Blackwell Publishing Ltd. 2012.